Resilient Korea Stocks Shrug Off Tech Woes to Top Asia

(Bloomberg) -- Korean stocks are top of the neighborhood this month having managed the impressive feat of dodging a tech selloff and a rise in virus numbers.

The Kospi Index is up 2.1% so far in September, making it the best performing major index in Asia Pacific, easily beating the 2% slump in the regional benchmark. Until an overnight rebound Wednesday in European shares, it was the world’s top performing bourse. Korea’s more technology-focused Kosdaq Index is up 2.5%, besting the 0.7% rise in the regional tech gauge.

Heavy industries and health care-related names are leading the charge with STX Heavy Industries Co. up over 130% this month, the top gainer in the index, and Sejin Heavy Industries Co. is up over 80%. Both are seen to benefit from Korean president Moon Jae-in’s plans to invest more in green projects. The extension of a ban in short-selling stocks also helped sentiment.

Unlike early August, when the Kospi also outperformed peers, the gauge is well below overbought territory, according to its relative strength indicator.

While Korean stocks are now up 64% from their March lows, there may be room for further upside, at least according to some strategists. The team at Societe Generale SA upgraded their view on the country to overweight from neutral, to add “some cyclicality to the portfolio,” in a note Tuesday.

“The recovery that started from domestic sectors in early April has started to broaden to industrials and exports sectors,” the strategists including Frank Benzimra wrote. “We see the leadership shifting from technology to more cyclical and other export-oriented sectors.”

Korean stocks will be among the biggest beneficiaries of normalization in global growth and a favored market in the early stages of a new earnings cycle, they said. Meanwhile, expectations for a fourth supplementary budget to support domestic demand are also rising, putting the consumer sector in prime position to lead the recovery, they added.

“Earnings momentum is shifting from tech to exporters including autos, industrials and chemicals, which we expect to lead in the next leg of the rally,” they said.

Foreign investors have remained wary of Korean stocks this year, with the Kospi showing some $23.4 billion of net outflows since the end of 2019, according to data compiled by Bloomberg.

©2020 Bloomberg L.P.